ACC 497 Week 3

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PFA

 

QUESTION 1)

Hyundai is considering opening a plant in two neighboring states.

Option 1: One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,115,000 pretax profit.

Option 2: The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $1,040,000 of pretax profit.

a. What is the after state taxes profit in the state with the 10% tax rate?

b. What is the after state taxes profit in the state with the 2% tax rate?

c. Which state should Hyundai choose?

QUESTION 2)

Molto Stancha Corporation had zero earnings this fiscal year; in fact, they lost money. Must they file a tax return?

 

No, corporations are   not required to file a tax return if they have a book loss.

 

Yes, return filing   is mandatory for corporations that have a book loss.

 

Yes, all   corporations are required to file an income tax return regardless of their   taxable income.

 

No, corporations are   not required to file an income tax return if they have zero earnings.

QUESTION 3)

Song earns $262,500 taxable income as an interior designer and is taxed at an average rate of 30 percent (i.e., $78,750 of tax).

a. If Congress increases the income tax rate such that Song’s average tax rate increases from 30 percent to 40 percent, how much more income tax will she pay assuming that the income effect is descriptive? (Round your intermediate calculations and final answer to 2 decimal places.)
b. If the income effect is descriptive, the tax base and the tax collected will increase.

QUESTION 4)

Juanita, a Texas resident (5th Circuit), is researching a tax question and finds a 5th Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable. Which circuit case has more “authoritative weight”?

QUESTION 5)

Fergie has the choice between investing in a State of New York bond at 4.8 percent and a Surething bond at 8.8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest?

QUESTION 6)

The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return?

QUESTION 7)

Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc., that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda’s marginal tax rate is 25 percent. (Leave no cells blank – be sure to enter “0” wherever required.)

a. What is her after-tax rate of return for the City of Heflin bond?

 

b. How much explicit tax does Melinda pay on the City of Heflin bond?

 

c. How much implicit tax does she pay on the City of Heflin bond?

 

d. How much explicit tax would she have paid on the Surething Inc. bond?

 

e. What is her after-tax rate of return on the Surething Inc. bond?

QUESTION 8)

Paula could not reach an agreement with the IRS at her appeals conference and has just received a 90-day letter. If she wants to litigate the issue but does not have sufficient cash to pay the proposed deficiency, what is her best court choice?

QUESTION 9)

Dennis is currently considering investing in municipal bonds that earn 4.50 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 6.0 percent.

a. If Dennis’s tax rate is 20 percent, which bond should he choose?

b. Which bond should he choose if his tax rate is 30 percent?

c. At what tax rate would he be indifferent between the bonds?

d. What strategy is this decision based upon?

QUESTION 10)

Congress would like to increase tax revenues by 19 percent. Assume that the average taxpayer in the United States earns $54,000 and pays an average tax rate of 15 percent.

a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 19 percent increase in tax revenues? (Round your answer to 2 decimal places.)

b.This is an example of what type of forecasting?